ANOTHER RELIEF FROM SANCTIONS CASE – ANOTHER CONSERVATIVE MP: RELIEF GRANTED AFTER FAILURE TO SERVE NOTICE OF FUNDING

THE ACTION

This was a defamation action where the claimant had failed to file notice of funding with the Particulars of Claim. The judge first determined the issue of whether the action should be heard by a jury or a judge. There was a separate issue in relation to relief from sanctions arising from the claimant’s failure. The application was not opposed. A significant factor was the fact that the claimant had given clear notice of the funding situation at the very outset of correspondence.

THE DECISION

“Relief from sanctions

This application is designed to ensure that Mr Yeo is able, if successful, to recover sums over and above his reasonable legal costs. His pursuit of this action is subject to a “funding arrangement” within the meaning of CPR 43.2(1)(k). This comprises a conditional fee agreement (CFA) entered into with his solicitors on 9 December 2013 which provides for a success fee, and an after-the-event (ATE) insurance policy of the same date. The ATE policy provides cover in respect of Mr Yeo’s potential costs liability up to £100,000 with staged premiums. The success fee and the insurance premiums are “additional liabilities” within the meaning of CPR 43.2(1)(o). These are in principle recoverable from TNL if the claim succeeds, subject to compliance with prescribed conditions.

By CPR 44.15(1) and paragraph 19 of the Costs Practice Direction (CPR 44) any party who wishes to claim an additional liability is required to provide specified information to the court and other parties about the funding arrangement by a prescribed method and at a prescribed time. The information which must be provided is specified in paragraph 19.4 of the Costs Practice Direction. The prescribed method of giving notice is by filing and serving a Notice of Funding in Form N251. The prescribed time for service, if the claimant is serving the claim form himself, is at the time the claim form is served. The consequences of failing to comply with these provisions are set out in CPR 44.3B(1):-

“Unless the court orders otherwise, a party may not recover as an additional liability – …

(c) any additional liability for any period during which that party failed to provide information about a funding arrangement in accordance with a rule, practice direction or court order;”

The steps to take in a case to which rule 44.3B(1)(c) applies are set out in paragraph 10.1 of the Costs Practice Direction (CPR 44):

“… the party in default may apply for relief from sanction. He should do so as quickly as possible after he becomes aware of the default. An application, supported by evidence, should be made under Part 23 ….”

That is the nature of the application made to me. It is supported by a witness statement of Mr Stephenson, a Consultant to Carter-Ruck, Mr Yeo’s solicitors. He explains that TNL was notified of the funding position and the insurance policy by letter dated 13 December 2013 and that the letter, which he exhibits, contained all the information set out in Form N251. However, form N251 was not filed or served when the claim form was issued. This was an oversight by an Assistant Solicitor whom Mr Stephenson had asked to file and serve the claim form and “to ensure that whatever needed to be done by way of notification of the CFA had been done”. The Assistant Solicitor misread the CPR and mistakenly thought that the December 2013 letter represented compliance. On Friday 11 July 2014 the omission was brought to Mr Stephenson’s attention by his Assistant Solicitor and on his instructions she filed and served form N251 on Monday 14 July 2014.

The application is not opposed by TNL, subject to payment of its costs incurred, which Mr Yeo has agreed to. However, Mr Yeo rightly accepts that it is still necessary to demonstrate that this is an appropriate case for the grant of relief. The approach to be taken by the Court on an application for relief from sanctions has been recently clarified by the Court of Appeal in Denton v TH White Ltd [2014] EWCA Civ 906. The approach is summarised in paragraph [24] of the joint judgment of Lord Dyson MR and Vos LJ:

“The first stage is to identify and assess the seriousness and significance of the “failure to comply with any rule, practice direction or court order” which engages rule 3.9(1). If the breach is neither serious nor significant, the court is unlikely to need to spend much time on the second and third stages. The second stage is to consider why the default occurred. The third stage is to evaluate “all the circumstances of the case, so as to enable [the court] to deal justly with the application including [the need (a) for litigation to be conducted efficiently and at proportionate cost; and (b) to enforce compliance with rules, practice directions and orders.]”

Relief from sanctions should not be granted lightly. The requirement to serve notice of funding is an important one. No defendant should be exposed to the risk of an additional liability of which they have no, or no adequate notice. There is a purpose to the requirement of the rules that notice should be given in a particular form to specified persons at a particular stage in the action. It helps to ensure that all the right information is provided in advance to other parties against whom a claim might be made, or who have a legitimate interest in knowing the potential costs involved in the litigation. It also helps the court to manage the case. However, I accept the submission of Mr Nicklin QC that in this instance the breach is not a serious or practically significant one.

Mr Stephenson is correct to say that the letter of 13 December 2013 contained all the information required by the rules. The information required was therefore provided to TNL some 3 months earlier than the CPR required it to be provided. The form in which it was provided was sufficiently clear. The letter consisted solely of information relating to the funding arrangement. It attached a copy of the insurance policy (with the premiums redacted). The information was not provided again at the time the claim was issued but there is no evidence of any prejudice resulting from that. Nor was it provided to the court, as it should have been, but that has had no consequences. I can deal shortly with stages two and three of the Denton approach. The reason the breach occurred was an error by the Assistant Solicitor and not a deliberate decision. The error was promptly rectified once noticed. The impact of the oversight on the efficient and proportionate conduct of litigation was negligible, consisting principally of the need to make this application which was made promptly, and the additional costs incurred for which Mr Yeo has undertaken to compensate TNL.

I am fortified in my conclusion that relief from sanctions should be granted by the decision of Norris J to grant relief in Forstater v Python (Monty) Pictures Ltd [2013] EWHC 3759 (Ch), [2014] 1 Costs L R 36. In that case a corporate claimant was joined to the action and an existing CFA with the individual claimant was varied on 24 May 2012 so as to make the company a party to it, but there was a failure to serve notice of funding in respect of the company. The evidence was that the defendant had “wondered” but had not known what the position was. Informal notice was given later by means of a “without prejudice save as to costs” letter on 19 July 2012 which contained the necessary information. The defendant did not suggest that it would have acted any differently if the same information had been provided by way of Form N251.

Norris J noted that the true beneficiaries of the application for relief, if granted, might well be the claimant’s company’s solicitors. Their client would have contractual liabilities to them but also a potential claim in negligence against them for their failure to serve and file Form N251 to enable recovery of the amount of those liabilities from the defendant. On the other hand, as Norris J observed, the consequence of withholding relief would be a windfall to the defendant. He granted relief to the extent of permitting the company to recover “such additional liability as would have been recoverable if Form 251 had been served on 19 July 2012”. Such an order left open all the issues ordinarily capable of being raised in respect of a CFA, including the appropriate level for the success fee. Here, the order sought is that “Form N251 be treated as filed and served on 19 March 2014″, the day the claim form was issued and this appears an appropriate form of order.”

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One comment

What interests me more about this case is the fact that Yeo has only £100,000 of ATE cover. That limited cover may help to explain why the Defendant wanted a jury trial (which would no doubt last longer and thus increase the already significant risk that the ATE cover would be inadequate and would leave Yeo personally exposed in relation to the Defendant’s costs).